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Just as Odysseus and his army slipped undetected into the walled city of Troy by hiding within their now-infamous wooden horse, so can temporary or contract workers with criminal records slip within the walls of an unsuspecting organization, leaving it to suffer the consequences. Companies may find themselves liable for the actions of a temporary or contract employee who harms someone on company property or company time. Or they may find themselves suffering financial losses from the criminal actions of these workers. And they will find it difficult to claim to victims, courts, or shareholders that they could not have known that the person represented a threat if the record shows that the worker had a criminal past, such as a prior conviction for murder, rape, drug possession, or fraud.

MOST ORGANIZATIONS conduct pre-employment background screening on full-time employees because they know screening can provide protection against liability for employee misconduct. However, they often mistakenly assume that the staffing firms or organizations providing temporary or contract workers are screening them. Even where screening is contractually mandated, the lack of depth and thoroughness of those checks may make them meaningless.

To ensure that they have adequately addressed this exposure, companies need to develop a screening policy that encompasses all workers who will be on company property or who will provide a service to the business.

Worker categories. The most common types of alternative employment arrangements are temporary employees, independent contractors including vendors and consultants, and professional employer organizations (PEOs).

When assessing screening needs and potential liability, it is important to understand which entity within these alternative employment arrangements is the legal employer, because under the doctrine of respondeat superior, the legal employer bears the risk of liability for employee misconduct. Unfortunately in many situations, the actual employer is not clearly defined.

Temporary employees. Temporary employees represent about 1 percent of the U.S. work force, or 1.2 million employees. In these arrangements, the staffing firm is usually considered the employer, and the client is considered a special employer.

Independent contractors. Independent contractors, including vendors and consultants, represent 6.5 percent of the work force. If this type of arrangement is set up correctly, the parties should remain independent of each other. Independent contractors are sometimes referred to as contract workers and are not typically employees of the client organization. They are instead employed by the contracting firm that dispatches them, or, in many instances, they are independent sole proprietors. This does not mean, however, that the courts will absolve the client company of any liability if the contractor causes harm or loss on the property.

PEO workers. PEO workers represent about 0.6 percent of the work force. PEO organizations provide workers under contract who usually work long-term for only one customer, generally at the customer’s work site. Security guards are a good example. Both the PEO and the client are considered co-employers, because both contract with each other to have an employment relationship with the worker.

The bottom line to all of these arrangements is the same: Whether the worker is technically hired through a PEO or a temporary agency, or is viewed as an independent contractor, most courts hold that an employer-employee relationship exists when the entity for which services are performed has the right to control and direct the individual who performs the services. Depending on the specific set of facts in each case, the label of employer could extend to the contracting organization and open it up to liability.

Joint liability. The legal title of employer imposes certain responsibilities, but for a user of alternative employment arrangements, it is often unclear how far these responsibilities extend. Do organizations have an obligation to ensure that the temporary firms, PEOs, or vendors used are conducting adequate background checks? In many instances, the courts have ruled that they do and that organizations may share joint employer liability in circumstances where the contracting company failed to check the background-screening program of the entities it hired.

Through case law, the courts have established criteria for determining whether a joint employer relationship exists—and, thus, whether a client organization must share liability.

For example, in one such analysis, the courts apply several conditions to determine whether an organization using temporary workers could be considered an employer, and thus be held jointly liable for any misconduct by a temporary worker.

The conditions include whether the organization has the right to control the means and manner in which the services are performed. Another factor is whether the organization has the right to discharge the worker without incurring liability.

Further, the courts will assess whether a worker is paid in a regular and routine manner for services performed. Other conditions are whether the organization furnishes the worker with a company vehicle, tools, equipment, materials, or supplies and whether it controls the premises where services are performed. If the court finds that most of these conditions exist, it may be sufficient to prove that the organization was a joint employer that could be liable for a temporary employee’s misconduct.

In one case (Read v. The Scott Fetzer Co., Texas Supreme Court, 1998), a manufacturer was found liable when its distributor’s independent door-to-door salesperson sexually assaulted a female customer in her home. The court found that the manufacturer had a duty to take reasonable precautions to prevent the assault because it retained control over how the salespeople operated. It was the manufacturer that required the sales staff to perform in-house demonstrations of its products, for example.

The joint employer relationship was the central issue in another appellate decision (Dunkin’ Donuts Mid-Atlantic Distribution Center, Inc. v. NLRB Warehouse, The U.S. Court of Appeals for the District of Columbia Circuit, 2004). The court ruled that two separate entities may be joint employers of a single work force if they share matters governing the essential terms of employment.

If a client organization is involved in decisions relating to employment tenure, discipline, assignment of work and equipment, recognition and awards, and day-to-day direction of the temporary employees, then a joint employer relationship is formed, the court explained. In the Dunkin’ Donuts case, the client organization administered tests, interviewed workers, required approval of applicants before hiring, selected employee assignments, handled complaints, and disciplined the temporary employees. Additionally, the client set the wages and benefit rate for the temporary employees.

The courts have also delineated the criteria by which a client company’s relationship with a contract worker could be deemed independent. The bar for meeting this “independent” classification is quite high, however.

The situation must meet all of the following criteria: The organization’s only concern is the end result. The organization and worker are in a binding contract, where failure to complete services is a breach of contract in which a remedy may be pursued by either party. The worker is paid by the job, on a bid basis, or by percentage of work completed. The worker furnishes all tools, equipment, materials, and supplies. The worker has substantial investment in the facilities used to perform the services. The worker makes his or her services available to the public on a continuing basis.

If an organization does not meet all of these criteria, the contract worker is seen as an employee of the organization to which it is providing services. This gives both parties joint employer liability for an improperly screened contract worker who commits a crime.

A program. Whether or not a company has joint-employer liability, it is never wise to create the potential for harm that arises when unscreened workers are allowed to perform services. The best approach is to develop a background-screening program for all potential employees.

Companies should make it a policy to ask any prospective vendor, independent contractor, temporary employment agency, or other service provider about their employee background-screening policies. The organization should determine the specifics of the contractor’s program, including what background-screening company the contractor uses, the specific levels of screening, and the specific background information the contractor uses to make hiring or placement decisions.

The objective is to ensure that the contractor is taking sufficient steps and is collecting the appropriate information. If the contractor does not already perform some type of background screening, the company may want to reconsider its relationship with the contractor.

To ensure consistency among all the staffing firms, contractors, and service providers it uses, an organization should establish a set of screening policy standards that all contractor programs must meet. The policy should be stipulated in the contract. It should include a requirement that the screening be done in conformance with all state and federal laws, including the Fair Credit Reporting Act.

At a minimum, all screening should include Social Security number verification, a criminal records search, employment history verification, and possibly a drug test.

Depending on the position being filled, management may also need to request additional types of verifications, including education verification, professional certification verification, a credit check, a motor vehicle records check, a government sanctions search for government contractors, and reference checks.

Cost. Temporary firms generally run on a small profit margin. The overhead of a staffing firm is high and adding background-screening costs further decreases profit margins. Depending on the extent of the actual background screen and whether it includes foreign jurisdictional checks, the cost per employee could run from $25 for a basic search to $150 and up for a complete set of searches and reference checks. A good search to satisfy most regulations and yield relevant criminal, credit, motor vehicle record, and other information will average approximately $60 per employee. Temporary staffing companies may want to negotiate higher pricing to absorb the screening cost or, alternatively, bill back to the client the actual cost of the screening. Companies should be open to sharing or bearing these costs.

Additional safeguards. In tandem with screening, an organization can take additional steps to protect itself from potentially dangerous temporary employees, contract workers, and vendors. As a guide to what these additional steps might include, organizations should consider the factors that the courts look at to determine whether an organization tried to prevent and detect criminal activity by both employees and alternative workers.

Courts consider whether the organization defines standards and procedures to be followed by employees and contract workers. Another issue is whether the organization employs a compliance officer to oversee contract workers and their screening. The court will also consider whether the organization exercises due care in selecting service providers.

Yet another factor is whether the contract for alternative employment arrangements includes indemnification provisions to shift liability to the staffing firm or PEO. This indemnification provides very strong protection for a company. However, most staffing firms will refuse to accept such provisions, so it may not be possible, but it should be considered as part of the contract negotiations.

Courts also consider whether the organization effectively communicates its standards to contract workers through means such as training programs, policies, and brochures. Another factor is whether the organization has policies and procedures in place so that it can take prompt and appropriate action after learning of a wrongful act committed by an employee or contract worker.

Courts will also determine whether policies and procedures are enforced consistently through appropriate disciplinary mechanisms and whether, after an offense has occurred, the organization has taken steps to prevent similar offenses in the future.

In light of the increased risk of liability in negligent hiring and negligent-retention litigation, organizations should take care in establishing alternative employment arrangements. They should have clear policies and consistent enforcement. And they should recognize the important role of the background-screening program for all workers.

Another citizen of Troy, Cassandra, was doomed to both accurately foretell the future and never have her predictions believed. Security professionals need not predict the future, but they must uncover the past actions of their employees and alternative workers that might put the organization at risk.

N. Alexander Erlam, Esq., is general counsel at Truescreen, Inc., a Vertical Screen Company. Truescreen is a leading provider of background screening, occupational health screening, and DOT compliance services to top firms worldwide.